Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.
Cooperative banking includes retail banking carried out by credit unions, mutual savings banks, building societies, and cooperatives, as well as commercial banking services provided by mutual organizations (such as cooperative federations) to cooperative businesses.
The government on Friday ruled out giving income tax exemption to profit-making cooperative banks saying they functioned like commercial banks and should be treated on par.
Replying to a member’s query during Question Hour in Lok Sabha, Finance Minister Arun Jaitley said the cooperative banks functioned like any other commercial bank and the principle of mutuality, which is central to granting exemption under Section 80P of the Income Tax Act, does not apply to them because their area of operations extends even to non-members.
“Income tax is a tax on profits and there is no rationale for exempting profit-making cooperative banks from payment of income tax,” he said.
Mr. Jaitley said most of these banks provided standard banking facilities like the opening of letters of credit, bill discounting and collection, lockers and safe deposit vaults and bank guarantees. “These banks are thus no different from commercial banks and therefore are required to be treated at par with them,” he said.
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